Hey, Benson, it would be helpful if you could explain your calculations in the last two lines. I can't figure out the math you are using, so I'm not in a position to understand the conclusions you are drawing. So please walk us through the math.
The simpler observation to make here is that cash and CE has fallen $182M over the last 4 quarters and $24.5M in the last quarter. So while they are substantially cash flow negative, the burn rate has improved in this last quarter. Moreover the last quarter is a low solar output quarter. So the net cash was only a decline of about $0.10/W deployed. Thus, had their cost been just $2.61/W instead of $2.71/W, they would have been cash net neutral.
So I think the first order of business is to move to cash flow positive. Then we can worry about longterm value creation. If you are concerned about solvency, cash flow is much more critical that any sort of longterm NPV.
Hello James, The math is pretty straightforward but I probably didn't explain it well enough.
The last-but-one line is simply half of "PowerCo Portfolio’s Pre-Tax Unlevered NPV remaining" line item. Basically this is my estimate of what actual contracted $s NPV with proper discounting would be.
The last line takes the last-but-one line, adds cash and subtracts ALL debts.
This might be a bit rough but here the goal is not to build a precise valuation model. But simply to show 'debt burden'.
Yes, totally agreed that liquidity should be the concern (if at all) and not solvency. But there is a HUGE point that you and TheTalkingMule are missing.
Looking at purely changes in Cash as a liquidity gauge is meaningful for a 'normal' company like Tesla. But not at all for SolarCity. In case of SolarCity the debt and cash are intricately related. Let me illustrate the point with real numbers.
| Period |
| 2015 Q3 | 2015 Q4 | Change |
| Debt and Cash: |
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| Debt – Recourse | $M | ($522.00) | ($602.50) | $80.50 |
| Debt – Convertible | $M | ($796.00) | ($909.00) | $113.00 |
| Cash & Short-Term Investments | $M | $418.40 | $393.90 | $24.50 |
| Current Portfolio Value |
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| Cumulative MW Deployed under Energy Contracts – EoP | GW | 1.5 | 1.7 |
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| PowerCo Portfolio’s Pre-Tax Unlevered NPV remaining | $M | $2,790 | $3,235 |
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| Debt – Non-Recourse | $M | ($1,013) | ($1,242) | $229.00 |
| PowerCo portfolio Pre-Tax Unlevered NPV Less Debt | $M | $1,777 | $1,993 |
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| Net increase in debt (all forms) |
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| $422.50 |
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| Net-Expenses for the quarter |
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| $447.00 |
Again all numbers from slide-1 except the last two rows.
As you see in the bottom-right cell that the net-expenses in Q4, above and beyond the incoming cash flow from consumers, was $447 million. It so happens that out of $447mil, $422.5mil was financed through increased borrowing. While a small amount of $24.5mil was spent from cash.
Now in a hypotetical scenario, if they borrowed only $200mln instead, the cash flow would be -$247mln. If say, they were able to borrow only $100mln, the cashflow would be -$347mil. Lets say they weren't able to procure any debt at all, the cash-flow would be the full -$447 million... I hope you see the point now. The change in cash is very directly related to the amount of borrowing.
This is where my original table becomes applicable as that demonstrates how high the debt has reached and sort of gives the clue that the debt trajectory is un-sustainable. If debt is unsustainable, and they are unable to procure much debt, then the cashflow will be dramatically negative.
In fact if debt stops for a mere single quarter, SolarCity will go bankrupt immediately! Their cash hoard won't be enough to sustain even a single quarter.
I have more to write but I will pause now to let this sink in.
